REPORT: March 4, 2022 Member Meeting

Times of Plenty:

State Responses to Historic Fiscal Conditions

Joseph R. CrosbyChairman and CEO
MultiState
Morgan ScarboroDirector, Tax Policy & Economist
MultiState

Introduction

It is critical that legislators make prudent investments, avoiding the temptation to over-appropriate the surplus or create long-term liabilities.

How is the Surplus Affecting Taxpayers?

 

States Have Record Levels of Revenue

Prudent Allocation of the Surplus

Rainy Day Funds

Despite fears to the contrary, state revenue collections in fiscal 2021 exceeded budget forecasts in nearly all states — at times by a substantial margin — and investments in Rainy Day Fund levels rose to historic levels in most states. Many states also increased the minimum size required and/or maximum size limit for their Rainy Day Fund balance to increase the margin of safety in uncertain times.

State unemployment insurance coffers have been depleted during the pandemic and the federal loans to shore up these funds must be repaid. Allocating surpluses to repay loans and stabilize unemployment funds is prudent, Ms. Scarboro noted.

For states that have used federal funds to extend weeks of unemployment benefits, for example, April 1st looms as a critical deadline. Federal funds must be used before that date or states will face a “maintenance of effort” requirement that will keep the extended benefits in place through 2026.

For states that have used federal funds to extend weeks of unemployment benefits, April 1st looms as a critical deadline.

Morgan Scarboro, Manager of Tax Policy & Economist at MultiState, compared state revenues during the first three quarters of FY 2020 and FY 2021. She noted an overall increase in state tax revenue of 12.1%, without considering federal aid. While eight states saw some loss of revenue, only three (Alaska, North Dakota, and Hawaii) had losses greater than 3.5% (see map).

Rainy Day Funds

 

What are States Doing with the Surplus?

Discussion

Moderated by

Tom Finneran

Sen. Ron Kouchi
President of the Senate, Hawaii

The state’s pandemic response was driven by the Governor and the Health Department, and their forced closures decimated our economy. The Governor’s Emergency Proclamation ends March 25th, and the legislature is looking at ways to curtail the Governor’s ability to declare emergency powers in the future. Having faced this, our legislature recognizes the risks and opportunities of the windfall. We have a $350 million Rainy Day Fund, but legislators say, “It’s raining now.” We are looking to restore activities that were cut in the downturn. Visitors are now returning to Hawaii but, on average, they are spending 20% less than pre-pandemic levels.

Meanwhile, the opportunity to work remotely brought many higher-echelon workers to the state who can afford to buy million-dollar homes, raising prices and outpacing the ability of local workers such as teachers — who earn a median salary of $100,000 — to find housing. Workforce housing is a critical need and the legislature is assessing a $1 billion investment in affordable housing. We anticipate that the construction projects will not only help to retain our workforce but also produce economic benefits for the community.

Sen. Bray said he is “cautiously optimistic,” because the future is uncertain; for example, inflation could be a coming threat. Therefore, while some legislators have reacted to the excess by proposing permanent tax cuts, he advises continued caution in making changes.

Sen. Karen Fann
President of the Senate, Arizona

The state’s economy is booming. Online sales tax revenues are way up thanks to the Wayfair decision, and the housing market is hot with new construction everywhere, bringing in substantial sales taxes from construction. The state has attracted significant new industries such as the Taiwan Superconductor Plant.

While Arizona’s economy looks great, Sen. Fann expressed concerns about the national debt climbing to $30 trillion, as federal funds continue to pour into the states. She suggested the need to put brakes on federal spending because of the burden of debt on future generations.

Furthermore, lack of labor force is a challenge. While the state stopped taking Federal Supplemental Unemployment Insurance benefits last year, “COVID folks aren’t going back to work yet,” she said. Sen. Fann further alluded to the housing issue facing all states, pointing out that the homeless in Arizona need shelter from the heat plus services such as those addressing mental health.

Sen. Fann also noted that water is always a huge issue in Arizona. The state is setting aside $1 billion for water resources. Most water is used for agricultural purposes, and, taking lessons from Israel, the state is converting flood irrigation systems to drip irrigation, which is expected to reduce water usage by 25%.

Sen. Bill Ferguson
President of the Senate, Maryland

Sen. Ferguson reported that Maryland has $500 million extra in the current fiscal year’s budget, the biggest surplus during his 12-year tenure in the legislature. The unexpected windfall brings the challenge of more people asking for more money. Where they formerly requested $1 million, now they ask for $150 million. We are all up for election and have to resist the pressure to do the wrong things for short-term gain that could have long-term negative consequences.

We have allocated surplus money to our Rainy Day Fund and are looking at investments in workforce development. Retirements are a huge issue in Maryland, particularly for state employees. We're losing significant institutional knowledge across state government. We need to invest to retain state employees, and keep local workers such as healthcare workers, attorneys, and others in our state. We have a “skill and build” program — an apprenticeship program in the building trades. Now we are developing an apprentice program in non-building trades to upskill people so they have increased access to economic opportunities.

Sen. Thomas Alexander
President of the Senate, South Carolina

Sen. Larry Taylor
Chair, Senate Education Committee, Texas

Sen. David Sokola
Senate President Pro Tempore, Delaware

The Road Ahead

Wrapping up the session, Mr. Crosby assessed the near fiscal future, noting that there are positive indicators such as increasing real estate values, growing employment, and better labor force participation, although he acknowledged that participation is still not at pre-pandemic levels. Inflation also could be a positive force in the short term, driving up wages, prices, and sales tax revenues.

However, he predicted that by the end of Q3/Q4 2023, the revenue bonanzas are likely to diminish. Current supply chain breakdowns are leading to a lack of products, especially consumer items such as cars and technology essentials such as computer chips, which that will impact sales tax revenues.

Mr. Crosby outlined the concerns that could derail the states’ booming economies, factors that, among others, reinforce the need for states to focus on fiscal prudence:

· With stakeholders clamoring to benefit from the current surplus, prudent investing is critical.

· As federal aid to the states recedes toward more traditional levels, underlying and unresolved issues will be revealed.

· Asset prices will moderate, no longer delivering 30% increases.

· Inflation can be a two-edged sword; will the Federal reserve get it right?

 

Speaker Biography

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

Morgan Scarboro

Director, Tax Policy & Economist
MultiState

Morgan Scarboro joined MultiState in 2018 and currently serves as Manager, Tax Policy and Economist. She uses her expertise in state tax policy to advise clients on policy trends, manage state advocacy coalitions, and track corporate income tax legislation across the country. She is a frequent panelist for state tax policy events and updates. Morgan also serves as co-chair of the Women in Government Relations' State Relations Task Force.

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

914-693-1818   •   info@senpf.com

Copyright © 2022 Senate Presidents' Forum. All rights reserved.

REPORT: March 4, 2022 Member Meeting

Times of Plenty:

State Responses to
Historic Fiscal Conditions

Joseph R. CrosbyChairman and CEO
MultiState
Morgan ScarboroDirector, Tax Policy & Economist
MultiState

Introduction

It is critical that legislators make prudent investments, avoiding the temptation to over-appropriate the surplus or create long-term liabilities.

How is the Surplus Affecting Taxpayers?

 

States Have Record Levels of Revenue

Prudent Allocation of the Surplus

Rainy Day Funds

Despite fears to the contrary, state revenue collections in fiscal 2021 exceeded budget forecasts in nearly all states — at times by a substantial margin — and investments in Rainy Day Fund levels rose to historic levels in most states. Many states also increased the minimum size required and/or maximum size limit for their Rainy Day Fund balance to increase the margin of safety in uncertain times.

State unemployment insurance coffers have been depleted during the pandemic and the federal loans to shore up these funds must be repaid. Allocating surpluses to repay loans and stabilize unemployment funds is prudent, Ms. Scarboro noted.

For states that have used federal funds to extend weeks of unemployment benefits, for example, April 1st looms as a critical deadline. Federal funds must be used before that date or states will face a “maintenance of effort” requirement that will keep the extended benefits in place through 2026.

For states that have used federal funds to extend weeks of unemployment benefits, April 1st looms as a critical deadline.

Morgan Scarboro, Manager of Tax Policy & Economist at MultiState, compared state revenues during the first three quarters of FY 2020 and FY 2021. She noted an overall increase in state tax revenue of 12.1%, without considering federal aid. While eight states saw some loss of revenue, only three (Alaska, North Dakota, and Hawaii) had losses greater than 3.5% (see map).

Rainy Day Funds

 

What are States Doing with the Surplus?

Discussion

Moderated by

Tom Finneran

Sen. Ron Kouchi
President of the Senate, Hawaii

The state’s pandemic response was driven by the Governor and the Health Department, and their forced closures decimated our economy. The Governor’s Emergency Proclamation ends March 25th, and the legislature is looking at ways to curtail the Governor’s ability to declare emergency powers in the future. Having faced this, our legislature recognizes the risks and opportunities of the windfall. We have a $350 million Rainy Day Fund, but legislators say, “It’s raining now.” We are looking to restore activities that were cut in the downturn. Visitors are now returning to Hawaii but, on average, they are spending 20% less than pre-pandemic levels.

Meanwhile, the opportunity to work remotely brought many higher-echelon workers to the state who can afford to buy million-dollar homes, raising prices and outpacing the ability of local workers such as teachers — who earn a median salary of $100,000 — to find housing. Workforce housing is a critical need and the legislature is assessing a $1 billion investment in affordable housing. We anticipate that the construction projects will not only help to retain our workforce but also produce economic benefits for the community.

Sen. Bray said he is “cautiously optimistic,” because the future is uncertain; for example, inflation could be a coming threat. Therefore, while some legislators have reacted to the excess by proposing permanent tax cuts, he advises continued caution in making changes.

Sen. Karen Fann
President of the Senate, Arizona

The state’s economy is booming. Online sales tax revenues are way up thanks to the Wayfair decision, and the housing market is hot with new construction everywhere, bringing in substantial sales taxes from construction. The state has attracted significant new industries such as the Taiwan Superconductor Plant.

While Arizona’s economy looks great, Sen. Fann expressed concerns about the national debt climbing to $30 trillion, as federal funds continue to pour into the states. She suggested the need to put brakes on federal spending because of the burden of debt on future generations.

Furthermore, lack of labor force is a challenge. While the state stopped taking Federal Supplemental Unemployment Insurance benefits last year, “COVID folks aren’t going back to work yet,” she said. Sen. Fann further alluded to the housing issue facing all states, pointing out that the homeless in Arizona need shelter from the heat plus services such as those addressing mental health.

Sen. Fann also noted that water is always a huge issue in Arizona. The state is setting aside $1 billion for water resources. Most water is used for agricultural purposes, and, taking lessons from Israel, the state is converting flood irrigation systems to drip irrigation, which is expected to reduce water usage by 25%.

Sen. Bill Ferguson
President of the Senate, Maryland

Sen. Ferguson reported that Maryland has $500 million extra in the current fiscal year’s budget, the biggest surplus during his 12-year tenure in the legislature. The unexpected windfall brings the challenge of more people asking for more money. Where they formerly requested $1 million, now they ask for $150 million. We are all up for election and have to resist the pressure to do the wrong things for short-term gain that could have long-term negative consequences.

We have allocated surplus money to our Rainy Day Fund and are looking at investments in workforce development. Retirements are a huge issue in Maryland, particularly for state employees. We're losing significant institutional knowledge across state government. We need to invest to retain state employees, and keep local workers such as healthcare workers, attorneys, and others in our state. We have a “skill and build” program — an apprenticeship program in the building trades. Now we are developing an apprentice program in non-building trades to upskill people so they have increased access to economic opportunities.

Sen. Thomas Alexander
President of the Senate, South Carolina

Sen. Larry Taylor
Chair, Senate Education Committee, Texas

Sen. David Sokola
Senate President Pro Tempore, Delaware

The Road Ahead

Wrapping up the session, Mr. Crosby assessed the near fiscal future, noting that there are positive indicators such as increasing real estate values, growing employment, and better labor force participation, although he acknowledged that participation is still not at pre-pandemic levels. Inflation also could be a positive force in the short term, driving up wages, prices, and sales tax revenues.

However, he predicted that by the end of Q3/Q4 2023, the revenue bonanzas are likely to diminish. Current supply chain breakdowns are leading to a lack of products, especially consumer items such as cars and technology essentials such as computer chips, which that will impact sales tax revenues.

Mr. Crosby outlined the concerns that could derail the states’ booming economies, factors that, among others, reinforce the need for states to focus on fiscal prudence:

· With stakeholders clamoring to benefit from the current surplus, prudent investing is critical.

· As federal aid to the states recedes toward more traditional levels, underlying and unresolved issues will be revealed.

· Asset prices will moderate, no longer delivering 30% increases.

· Inflation can be a two-edged sword; will the Federal reserve get it right?

 

Speaker Biographies

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

Morgan Scarboro

Director, Tax Policy & Economist
MultiState

Morgan Scarboro joined MultiState in 2018 and currently serves as Manager, Tax Policy and Economist. She uses her expertise in state tax policy to advise clients on policy trends, manage state advocacy coalitions, and track corporate income tax legislation across the country. She is a frequent panelist for state tax policy events and updates. Morgan also serves as co-chair of the Women in Government Relations' State Relations Task Force.

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

 

914-693-1818   •   info@senpf.com

Copyright © 2022 Senate Presidents' Forum. All rights reserved.

REPORT: March 4, 2022 Member Meeting

Times of Plenty:

State Responses to
Historic Fiscal Conditions

Joseph R. CrosbyChairman and CEO
MultiState
Morgan ScarboroDirector, Tax Policy & Economist
MultiState

Introduction

It is critical that legislators make prudent investments, avoiding the temptation to over-appropriate the surplus or create long-term liabilities.

How is the Surplus Affecting Taxpayers?

 

States Have Record Levels of Revenue

Prudent Allocation of the Surplus

Rainy Day Funds

Despite fears to the contrary, state revenue collections in fiscal 2021 exceeded budget forecasts in nearly all states — at times by a substantial margin — and investments in Rainy Day Fund levels rose to historic levels in most states. Many states also increased the minimum size required and/or maximum size limit for their Rainy Day Fund balance to increase the margin of safety in uncertain times.

State unemployment insurance coffers have been depleted during the pandemic and the federal loans to shore up these funds must be repaid. Allocating surpluses to repay loans and stabilize unemployment funds is prudent, Ms. Scarboro noted.

For states that have used federal funds to extend weeks of unemployment benefits, for example, April 1st looms as a critical deadline. Federal funds must be used before that date or states will face a “maintenance of effort” requirement that will keep the extended benefits in place through 2026.

For states that have used federal funds to extend weeks of unemployment benefits, April 1st looms as a critical deadline.

Morgan Scarboro, Manager of Tax Policy & Economist at MultiState, compared state revenues during the first three quarters of FY 2020 and FY 2021. She noted an overall increase in state tax revenue of 12.1%, without considering federal aid. While eight states saw some loss of revenue, only three (Alaska, North Dakota, and Hawaii) had losses greater than 3.5% (see map).

Rainy Day Funds

 

What are States Doing with the Surplus?

Discussion

Moderated by

Tom Finneran

Sen. Ron Kouchi
President of the Senate, Hawaii

The state’s pandemic response was driven by the Governor and the Health Department, and their forced closures decimated our economy. The Governor’s Emergency Proclamation ends March 25th, and the legislature is looking at ways to curtail the Governor’s ability to declare emergency powers in the future. Having faced this, our legislature recognizes the risks and opportunities of the windfall. We have a $350 million Rainy Day Fund, but legislators say, “It’s raining now.” We are looking to restore activities that were cut in the downturn. Visitors are now returning to Hawaii but, on average, they are spending 20% less than pre-pandemic levels.

Meanwhile, the opportunity to work remotely brought many higher-echelon workers to the state who can afford to buy million-dollar homes, raising prices and outpacing the ability of local workers such as teachers — who earn a median salary of $100,000 — to find housing. Workforce housing is a critical need and the legislature is assessing a $1 billion investment in affordable housing. We anticipate that the construction projects will not only help to retain our workforce but also produce economic benefits for the community.

Sen. Bray said he is “cautiously optimistic,” because the future is uncertain; for example, inflation could be a coming threat. Therefore, while some legislators have reacted to the excess by proposing permanent tax cuts, he advises continued caution in making changes.

Sen. Karen Fann
President of the Senate, Arizona

The state’s economy is booming. Online sales tax revenues are way up thanks to the Wayfair decision, and the housing market is hot with new construction everywhere, bringing in substantial sales taxes from construction. The state has attracted significant new industries such as the Taiwan Superconductor Plant.

While Arizona’s economy looks great, Sen. Fann expressed concerns about the national debt climbing to $30 trillion, as federal funds continue to pour into the states. She suggested the need to put brakes on federal spending because of the burden of debt on future generations.

Furthermore, lack of labor force is a challenge. While the state stopped taking Federal Supplemental Unemployment Insurance benefits last year, “COVID folks aren’t going back to work yet,” she said. Sen. Fann further alluded to the housing issue facing all states, pointing out that the homeless in Arizona need shelter from the heat plus services such as those addressing mental health.

Sen. Fann also noted that water is always a huge issue in Arizona. The state is setting aside $1 billion for water resources. Most water is used for agricultural purposes, and, taking lessons from Israel, the state is converting flood irrigation systems to drip irrigation, which is expected to reduce water usage by 25%.

Sen. Bill Ferguson
President of the Senate, Maryland

Sen. Ferguson reported that Maryland has $500 million extra in the current fiscal year’s budget, the biggest surplus during his 12-year tenure in the legislature. The unexpected windfall brings the challenge of more people asking for more money. Where they formerly requested $1 million, now they ask for $150 million. We are all up for election and have to resist the pressure to do the wrong things for short-term gain that could have long-term negative consequences.

We have allocated surplus money to our Rainy Day Fund and are looking at investments in workforce development. Retirements are a huge issue in Maryland, particularly for state employees. We're losing significant institutional knowledge across state government. We need to invest to retain state employees, and keep local workers such as healthcare workers, attorneys, and others in our state. We have a “skill and build” program — an apprenticeship program in the building trades. Now we are developing an apprentice program in non-building trades to upskill people so they have increased access to economic opportunities.

Sen. Thomas Alexander
President of the Senate, South Carolina

Sen. Larry Taylor
Chair, Senate Education Committee, Texas

Sen. David Sokola
Senate President Pro Tempore, Delaware

The Road Ahead

Wrapping up the session, Mr. Crosby assessed the near fiscal future, noting that there are positive indicators such as increasing real estate values, growing employment, and better labor force participation, although he acknowledged that participation is still not at pre-pandemic levels. Inflation also could be a positive force in the short term, driving up wages, prices, and sales tax revenues.

However, he predicted that by the end of Q3/Q4 2023, the revenue bonanzas are likely to diminish. Current supply chain breakdowns are leading to a lack of products, especially consumer items such as cars and technology essentials such as computer chips, which that will impact sales tax revenues.

Mr. Crosby outlined the concerns that could derail the states’ booming economies, factors that, among others, reinforce the need for states to focus on fiscal prudence:

· With stakeholders clamoring to benefit from the current surplus, prudent investing is critical.

· As federal aid to the states recedes toward more traditional levels, underlying and unresolved issues will be revealed.

· Asset prices will moderate, no longer delivering 30% increases.

· Inflation can be a two-edged sword; will the Federal reserve get it right?

 

Speaker Biographies

Joseph R. Crosby

Chairman and CEO
MultiState

Joe Crosby is the Chairman and CEO of MultiState, a state and local government relations company. He is involved in all aspects of the firm’s efforts to help clients resolve the challenges they face in the state and local government arena, with a concentration on providing strategic counsel, identifying and deploying political assets, and advancing tax policy objectives.

Morgan Scarboro

Director, Tax Policy & Economist
MultiState

Morgan Scarboro joined MultiState in 2018 and currently serves as Manager, Tax Policy and Economist. She uses her expertise in state tax policy to advise clients on policy trends, manage state advocacy coalitions, and track corporate income tax legislation across the country. She is a frequent panelist for state tax policy events and updates. Morgan also serves as co-chair of the Women in Government Relations' State Relations Task Force.

CONTACT US

Senate Presidents’ Forum

579 Broadway

Hastings-on-Hudson, NY 10706

914-693-1818   •   info@senpf.com

Copyright © 2022 Senate Presidents' Forum. All rights reserved.